Navigating Ag Market Volatility with Dan Basse

As cattlemen, there are many factors out of our control that impact operations. But how you we navigate extremely volatile markets to ensure long term success? 

Today’s host Miranda Reiman had a chance to chat with Dan Basse of Ag Resource Company who shed light on the U.S. and world economy, grain prices and the state of the cattle market over the coming year. 

They discuss:

• Current ag markets
• How to navigate market challenges
• Potential opportunities in the coming year
• and more! 

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Transcript

Speaker 1:

Angus at Work, a podcast for the profit-minded cattleman. Brought to you by the Angus Beef Bulletin, we have news and information on health, nutrition, marketing, genetics, and management. So, let's get to work, shall we?

Hello, and welcome back to Angus at Work. As cattlemen, there are many factors out of our control that impact operations. But how do you navigate extremely volatile markets to ensure long-term success? Today's host, Miranda Reiman, had a chance to chat with Dan Basse of AgResource Company, who shed light on the U.S. and world economy, grain prices, and the state of the cattle market over the coming year. So, let's dive in.

Miranda Reiman:

Welcome to the Angus at Work podcast! I'm your host Miranda Reiman and today I am with Dan Basse, who's been speaking at the Feeding Quality Forum. How are you doing today, Dan?

Dan Basse:

I'm really well. It was a good forum. A lot of people, a lot of energy.

Miranda Reiman:

Absolutely. That room was filled up and everybody was there to hear, as always, you always deliver a great message. I shouldn't say a great message, you always deliver that facts, the outlook on the global grain trade as well as global livestock markets, etc. Would you say it was a great message today?

Dan Basse:

There's so much going on today, whether it's globally, economically or politically, that it's filled with targets that gave us a lot of fodder to talk about. I always look at the room and everybody was engaged, and I didn't see anybody fall asleep, so it means that we were okay. We were the first speech of the day, and it really went well, I thought, in terms of getting through a vast array of topics. We started with the U.S. and world economy. We meld it down to grain prices, what feed users should do, and then where the cattle market, which we think is a big bull market for a couple more years. Yeah.

Miranda Reiman:

Absolutely. I would say some years you have like a very good news, bad news outlook. A lot of it, I would say is both good news and bad news.

Dan Basse:

Well, it's the struggle that the farmer will have, whether he's a beef producer or a grain producer, will be the extreme volatility that ag markets present over the next year. How they manage that will have a big impact on net farm revenue. We look at USDA data, their marketing decisions, what they do with cattle or corn or feed, a 67% of net farm revenue. So when you think about the impact on the bottom line of the American farmer, the American beef producer, he needs to be very cognizant of what's going on in markets.

Miranda Reiman:

Sure. A lot of times we talk about supply and demand and economics, but I heard you a lot of times say that this is a supply-driven market. Explain what that means in this year and long-term.

Dan Basse:

Well, as you look at the beef supply in this country, it is coming down. It's 3% less this year than last year. Kill numbers are the packers trying to manage with that tightening supply. And when we look at the beef cow numbers, we're at levels now we've not seen since the 1960s. So putting it all together, without an expansion of the cattle herd, I got a supply-driven bull market in beef that looks forward at least to 2025. Tell me that I'm going to have another year of not retaining heifers, and I can take that to 2026. And that's the problem, if we retain heifers, we take beef off the market, and we even accelerate the supply-driven market. And so that's kind of where we are in beef and cattle trade today.

Miranda Reiman:

Absolutely. Then let's bring in the input side of the equation. What's happening in the global grain trade?

Dan Basse:

Well, grain prices have come down, thankfully, and so this has really caused feeder cattle prices to rise. Feeder cattle prices are like cattle prices are at record highs. I would imagine that they'll keep going higher. But when you reach these kind of nosebleed price levels, you find volatility going higher, and you need that, you really need your banker. I told everybody they need to send a birthday card to their banker because the capital requirements to be in the cattle industry are never going to be lower than this year. I think they're going up again in '24, '25, and '26, and so you need to stay friendly with that gentleman who, our lady, that gives us our lines of credit.

Miranda Reiman:

You talked about volatility. I think that's been a buzzword or a keyword for a lot of years in a row, but what's different about the volatility this year?

Dan Basse:

Well, when we look back at the bull market that we had in cattle that we talked about last year, it was a marching bull market. Almost every week, we had cash cattle prices rising higher, we had basis levels that were deeply positive. And so the cattleman really was in a position he just didn't have to do much. I mean, if he bought lightweight calves or feeders, he did fine. If he waited for the corn market to go down, he was right. So it was a year of apathy of him decision making. Now it gets to be a little more difficult in terms of feeder cattle prices are high, cattle prices are high, grain markets are low. What does he do you for this year and the year ahead? I think his challenges and his decision making would be far different than what just happened in the marching bull market of last year.

Miranda Reiman:

I think you said the easy money has already been made.

Dan Basse:

The easy money is off the table. Now, if you're a trader or you're a feeder or you're a packer, this really comes down to management and what you do with risk.

Miranda Reiman:

So what's going on in the world today that's maybe in the political climate and other markets in terms of what's going on in the other food producing countries and the net importers?

Dan Basse:

Well, there's so much that we talked about. We talked about the new competitive landscape economically between China and the United States. We all focus on Taiwan politically, but it's really the economic war that's been going between the two countries. China's making U.S. goods, sending them to us, of course, at a reasonable price. However, China wants to have more technology. They want to get into our back door in terms of what we're doing, and we're being resonant to prevent that. So, as we look at it going forward, China is now an economic adversary, not a friend. That's something that hasn't happened for 30 years. The other thing, which is very new is the landscape in South America politically is changing. Argentina has an inflation rate of 114%. They've got a new election, which comes up for president in October. The front-runner is somebody who wants to dollarize the economy, get rid of the peso and dollarize, boy that'd caused hyperinflation nearby. And in a sharp drop thereafter, we'll see how those kinds of things pan out.

And then you've got a war ongoing between Russia and Ukraine. That hasn't happened, but it's off the front page now, it's on page two. But, we'll see how this all puts together. But again, lots and lots happening, besides the U.S. being unable to get to a budget pack and having political parties reach across the aisle.

Miranda Reiman:

Sure. And you also brought up the price of rice in India. How does that relate?

Dan Basse:

So we look back over the last two years, the reason the world didn't have a food crisis was a little grain, a white grain called rice. And rice fed most of North Africa and Southeast Asia at a relatively cheap price, even though wheat prices and a lot of other things skyrocketed. Well, now we have that little white grain going sharply higher worldwide. Prices are sitting right below the record high, and this is going to cause pressure on Southeast Asia and much of Africa. It's going to mean more wheat coming in. But we believe India is at this tipping point in which they now become a significant grain importer for years to come, and that's a really big deal.

Miranda Reiman:

Sure. So you've given us a lot of information. What does that mean back to the cattleman? What's your advice based on everything you know?

Dan Basse:

So, I want the cattleman to think forward. We believe that the corn market bottoms out somewhere between 450 and 470 per bu. It's where maybe by the end of the middle or end of September. We believe that, you not only think about the corn market today, but think about '24. If I get December of '24 corn futures down to 480 or 490, I'd like to think that far forward because I think this is an opportunity. In terms of the cattle market, we could have cattle prices on a board in Chicago trading between 160 and 220. It's a wide, wide range and be prepared for volatility because there's going to be times where we go sharply higher, sharply lower. So, these are the things that I want the cattlemen to think about. Always be mindful of your profitability, how you can lock in corn feeders and cattle to make money going forward.

Miranda Reiman:

Absolutely. Well, we always try to wrap up this podcast with a little bit of good news. There's enough bad news in the world. So tell us something good, whether it's personal or professional.

Dan Basse:

Well, I'm now to the age of 66, and so I've been doing this for 44 years. I'm thankful that everything that agriculture is this, my give back to American agriculture is being chairman of Farm Foundation. I was just elected the chairman of Farm Foundation. We are something that tries to increase farm income, but more importantly, we try to do things with farm health. Too many farmers in my... If there's one that commits suicide, it's too many. So we try to connect farmers through technology that they're going to have people to talk to, that are in their same position. And I think these are the kinds of things that makes agriculture better. We all connect our hands and we help our fellow neighbor, and that's what I think agriculture's all about.

Miranda Reiman:

Excellent. That is definitely good news. Well, thank you for your service. Thank you for coming to speak to us today.

Dan Basse:

You're very welcome.

Speaker 4:

Listeners. To get more information to help make Angus work for you, check out the Angus Beef Bulletin and the Angus Beef Bulletin Extra publications. You'll find links to subscribe to both of those in our show notes. If you have questions or comments, please let us know at abbeditorial@angus.org. And we'd sure appreciate it if you would rate this podcast, or leave a review to tell us what you learned or what was helpful. And share this episode with any other profit-minded cattlemen. Thanks for listening, this has been Angus at Work.